AMD has announced a plan to license the design of its top-of-the-line server processor to a newly formed Chinese company, creating a brand-new rival for Intel.

AMD is licensing its x86 processor and system-on-chip technology to a company called THATIC (Tianjin Haiguang Advanced Technology Investment Co. Ltd.), a joint venture between AMD and a consortium of public and private Chinese companies.

AMD is providing all the technology needed for THATIC to make a server chip, including the CPUs, interconnects and controllers. THATIC will be able to make variants of the x86 chips for different types of servers.

Most PCs and servers are based on x86 chips, but licensing the chip technology to other companies is rare, even if that company is a joint venture, said Jim McGregor, principal analyst at Tirias Research.

AMD is much smaller than Intel, and licensing offers it an easy way to expand the installed base of AMD technology. The resource-strapped company will also generate licensing revenue in the process, McGregor said.

AMD is taking every step it can to be competitive with Intel, and there's a good chance it will ultimately license its PC chip designs, McGregor said.

The deal is a sign that AMD is looking to monetize its large portfolio of intellectual property, said Patrick Moorhead, president and principal analyst at Moor Insights and Strategy.

"I would expect more deals like this in areas AMD can’t reach with their platforms or resources. I would expect arrangements not just for their CPU technology but also their GPU technology," Moorhead said in an email.

Intel won't be happy to hear this news. Suddenly, the long-running two-horse x86 race could include more players, which would hurt Intel more than AMD. Intel dominates the server and PC markets, and licensees could flood AMD's x86 chip variants into more servers and possibly even PCs.

Intel has been holding on tight to its x86 designs and hasn't licensed its chip technology yet. The company makes its own chips, with either sales or design partnerships with companies like RockChip in China. Intel hasn't licensed its x86 architecture to its engineering partners.

"Intel will give you a black box, but not the keys to the kingdom," McGregor said.

AMD will probably license server chip designs based on its upcoming Zen architecture. Zen is supposed to be AMD's best CPU in more than a decade, with performance gains of up to 40 percent per clock cycle. AMD also hopes Zen will make it a true competitor against Intel.

AMD will continue to sell its homegrown server chips. The first Zen server chips will be in servers early next year.

Intel and AMD have already have an x86 cross-licensing agreement. AMD is confident it is not violating any agreement by doing the joint venture with THATIC.

AMD has been quiet about the size of its share in THATIC, but it's not pouring money in. AMD's only investment will be the intellectual property, and it is expecting overall revenue of $293 million from the deal. THATIC operations effectively will be in the hands of the Chinese Academy of Sciences, a national research institution.

AMD's approach here is much like that taken by ARM, which licenses its chip designs to many companies. ARM processor designs are used in smartphones and tablets from the likes of Apple and Samsung. However licensing chip technology hasn't worked out for companies like Nvidia, which found no takers for its Kepler GPU design.

AMD once was a competitive threat to Intel in servers, but it squandered most of its market share with missteps like the heavily criticized Bulldozer architecture. AMD also bought microserver company SeaMicro for $334 million in 2012 but exited that market last year.

The licensing deal and joint venture also give AMD a direct entry into the booming China market. Companies like Baidu, Tencent and Alibaba are building mega data centers, much like Google and Facebook in the U.S., and are committing a lot of computing resources in areas like machine learning.

AMD's entry will also intensify server competition in China. IBM is warming up to Chinese companies with its Power architecture and Qualcomm is making a 24-core ARM server chip for the market.

The joint venture will also give the Chinese government access to x86 designs, which it has coveted for a long time, McGregor said. China wants to foster the development of homegrown chips, and local companies already have access to architectures like Power, ARM and MIPS.

But there's still work for AMD to do in building a relationship with the Chinese government. Intel has a head start as it has played politically nice and invested heavily in China.

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